I am always reminding clients about the importance of a tax form called W-9. If you go to any CPA they will inform you that the IRS mandates any funds paid to a vendor over $600 must be reported on a 1099 form. The W-9, legally, gives us the apporpriate information to complete these 1099 forms.
The 1099 takes place of a W-2 wage statement for a company or individual. This is how we report money paid to this entity. Without this, the IRS would have a hard time determining how much a person made the previous year.
"So what if I choose not to report? What is the big deal? I am helping out a friend by not reporting." Uh oh. I say to the last statement since it typically is not a good rule of thumb to get into business with family or friends. :) Another uh oh for the idea that you think you will not get "caught". The IRS has ways to find out the truth.
Example: Many of my clients, as you may know, are real estate investors that eagerly write off many expenses-including subcontractor labor. If you are ever audited, the IRS will quickly see that you wrote many checks, totaling more than $600, to your contractor last year. Not good for you. You, yes you, could be held liable for the contractors unpaid taxes. YIKES!! At the very least suffer penalties.
Note: You do not have to report income on corporate entities, LLCs, GPs, or LLPs.
So I always say, do the right thing and report.
Go here to learn about how the IRS views employees vs. independent contractors:
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
Tip of the Day: Choosing a Financial Software Program
Oh my! How confusing is it to choose the best software program for your company? Clients ask me all the time, "What do you recommend for my business?" This is somewhat of a hard question to answer because of many various factors in the equation.
1. How much money do you want to spend?
This is typically my first question because if you only want to spend $100 or so on software, then many products are automatically ruled out. Though this is the first question, this is definitely not the most important.
2. What type of data do you need to generate?
Don't let this question confuse you. All this means is, what type of reports do you need daily, weekly, monthly and annually? If you simply need a basic profit and loss statement or balance sheet then you could use a cheaper software and get everything your company needs.
3. What key features are you looking for?
Do you need to generate custom invoices? Do you need to be able to customize reports or spreadsheets? Most financial software come with basic accounting functions (money in/money out) but some companies may require a bit more for their needs.
4. Does size really matter?
Can your software keep up with the demands of your company? For most small businesses a basic accounting software will work just fine. But you need to ask yourself-how quickly do I want to grow? The answer will directly affect the functionality and scalability of the software. Can you software grow with you? Are there various versions that handle more data or more effectively sort data to suit your needs?
5. What do others think of the product?
Do your research. Find out what others are saying about the product. How does it function in daily tasks? How long has the software been around? What about customer service or tech support?
_______________________________________________________
Software Comparisons
http://accounting-software-review.toptenreviews.com/
Now for me and my company, we specialize in QuickBooks. I am a QuickBooks Pro Advisor and know many tips and tricks to customize this software to suit your business. You will see on the review that QuickBooks Pro did not fair as well in inventory or fixed asset management. This is true. Although, QuickBooks Premier (next level up) does a pretty good job in both areas. Many of my clients do not have an inventory or many fixed assets (other than houses) so the Pro version is more than enough for them.
1. How much money do you want to spend?
This is typically my first question because if you only want to spend $100 or so on software, then many products are automatically ruled out. Though this is the first question, this is definitely not the most important.
2. What type of data do you need to generate?
Don't let this question confuse you. All this means is, what type of reports do you need daily, weekly, monthly and annually? If you simply need a basic profit and loss statement or balance sheet then you could use a cheaper software and get everything your company needs.
3. What key features are you looking for?
Do you need to generate custom invoices? Do you need to be able to customize reports or spreadsheets? Most financial software come with basic accounting functions (money in/money out) but some companies may require a bit more for their needs.
4. Does size really matter?
Can your software keep up with the demands of your company? For most small businesses a basic accounting software will work just fine. But you need to ask yourself-how quickly do I want to grow? The answer will directly affect the functionality and scalability of the software. Can you software grow with you? Are there various versions that handle more data or more effectively sort data to suit your needs?
5. What do others think of the product?
Do your research. Find out what others are saying about the product. How does it function in daily tasks? How long has the software been around? What about customer service or tech support?
_______________________________________________________
Software Comparisons
http://accounting-software-review.toptenreviews.com/
Now for me and my company, we specialize in QuickBooks. I am a QuickBooks Pro Advisor and know many tips and tricks to customize this software to suit your business. You will see on the review that QuickBooks Pro did not fair as well in inventory or fixed asset management. This is true. Although, QuickBooks Premier (next level up) does a pretty good job in both areas. Many of my clients do not have an inventory or many fixed assets (other than houses) so the Pro version is more than enough for them.
Tip of the Day: Filing Systems
Ok folks. I am going to be honest with myself and with you here. Filing is not my strong suit. I admit it. :) I do such a large volume of data entry that by the time the entry is done, the thought of filing each separate credit card receipt or invoice is grueling for me.
I digress. You must file your documents. You never know when you will need to look up an invoice or bank statement. Trust me on this.
If you are a smaller business then you really do not need to create a file for every customer or vendor. You can "group" files such as using the A-C, D-F method. Meaning clients or vendors that begin with the letter A-C, D-F, etc.
Now, for my larger companies out there, I would recommend you create separate file folders for each customer or vendor. By the time year end rolls around you are going to have a large stack of papers.
That being said, technology has come a long way the last few years. Since I shared with you that I do not like filing documents, I will also share with you how I personally file my documents. I scan them onto my computer. I keep a folder on my desktop for items to scan in. When I get a few moments of "free time" :) I grab items from this folder and scan onto my computer so I can quickly access it at a later time. I do this with tax returns, receipts, bank statements, payroll, etc.
But I am not done here. About once a week I back up all of my data to an online server that I pay a monthly subscription. Filesanywhere.com is a great and cheap server provider. For 3.95 a month I have access to a large server space that I can upload, download, backup, fax, email, etc. It is fairly easy to use. I use this for each of my clients. It is 128 bit-Verisign SSL encrypted so your files are completely protected.
Crystal :)
I digress. You must file your documents. You never know when you will need to look up an invoice or bank statement. Trust me on this.
If you are a smaller business then you really do not need to create a file for every customer or vendor. You can "group" files such as using the A-C, D-F method. Meaning clients or vendors that begin with the letter A-C, D-F, etc.
Now, for my larger companies out there, I would recommend you create separate file folders for each customer or vendor. By the time year end rolls around you are going to have a large stack of papers.
That being said, technology has come a long way the last few years. Since I shared with you that I do not like filing documents, I will also share with you how I personally file my documents. I scan them onto my computer. I keep a folder on my desktop for items to scan in. When I get a few moments of "free time" :) I grab items from this folder and scan onto my computer so I can quickly access it at a later time. I do this with tax returns, receipts, bank statements, payroll, etc.
But I am not done here. About once a week I back up all of my data to an online server that I pay a monthly subscription. Filesanywhere.com is a great and cheap server provider. For 3.95 a month I have access to a large server space that I can upload, download, backup, fax, email, etc. It is fairly easy to use. I use this for each of my clients. It is 128 bit-Verisign SSL encrypted so your files are completely protected.
Crystal :)
Tip of the Day: What is Reconciliation?
I keep talking about a term called reconciliation. The basic definition "is the process of comparing and matching figures from the accounting records against those shown on a bank statement. The result is that any transactions in the accounting records not found on the bank statement are said to be outstanding." -source: http://en.wikipedia.org/wiki/Bank_reconciliation
In other words you are matching your financial records to the bank's records for the month in order to detect any errors by either party.
Now that you know what reconciliation is, how do you do it?
Step1:
Start with the bank statement's ending balance and check it against the balance in your check book. If they differ, you'll need to account for, or reconcile, the difference. Make sure your check book arithmetic is correct before proceeding.
Step 2
Verify that you have added bank interest and bank credits and subtracted bank charges and bank debits in your check book balance. If you see debits you don't understand, call the bank and ask for an explanation and, if necessary, a justification for the charge.
Step 3
Tick off all checks that appear on the bank statement and be sure all check numbers and amounts agree with your check book record. List any checks you have written which do not appear on the bank statement and subtract them from the bank statement balance. These are called "outstanding checks."
Step 4
Add any deposits to the bank statement balance which you have included in your check book balance after the statement's closing date and do not appear on the bank statement. These are called "deposits in transit." Follow up on the next month's bank statement when you receive it to verify they have been credited to your account.
Step 5
Compare the adjusted bank statement balance to your check book balance. They should now agree. If they don't, and this is the first time you are doing a reconciliation, look for debits, credits and checks from prior months you may have missed in your check book. If you still can't get the two balances to agree, you may need to go to the bank and ask for assistance in doing a line by line comparison over several months until you can resolve the difference
-source: http://www.ehow.com/how_2227323_reconcile-bank-statement.html
I hope this answers your questions regarding the reconciliation process.
Crystal :)
In other words you are matching your financial records to the bank's records for the month in order to detect any errors by either party.
Now that you know what reconciliation is, how do you do it?
Step1:
Start with the bank statement's ending balance and check it against the balance in your check book. If they differ, you'll need to account for, or reconcile, the difference. Make sure your check book arithmetic is correct before proceeding.
Step 2
Verify that you have added bank interest and bank credits and subtracted bank charges and bank debits in your check book balance. If you see debits you don't understand, call the bank and ask for an explanation and, if necessary, a justification for the charge.
Step 3
Tick off all checks that appear on the bank statement and be sure all check numbers and amounts agree with your check book record. List any checks you have written which do not appear on the bank statement and subtract them from the bank statement balance. These are called "outstanding checks."
Step 4
Add any deposits to the bank statement balance which you have included in your check book balance after the statement's closing date and do not appear on the bank statement. These are called "deposits in transit." Follow up on the next month's bank statement when you receive it to verify they have been credited to your account.
Step 5
Compare the adjusted bank statement balance to your check book balance. They should now agree. If they don't, and this is the first time you are doing a reconciliation, look for debits, credits and checks from prior months you may have missed in your check book. If you still can't get the two balances to agree, you may need to go to the bank and ask for assistance in doing a line by line comparison over several months until you can resolve the difference
-source: http://www.ehow.com/how_2227323_reconcile-bank-statement.html
I hope this answers your questions regarding the reconciliation process.
Crystal :)
Tip of the Day: Petty Cash
How your company handles Petty Cash can be easy or a headache. It is up to you. Do you reconcile regularly or do you wait until all funds are out of the box, hold your breath, then pray that all receipts are in the box?
My suggestion would be to start small, either $50 or $100. You can add more later if you feel your company needs the funds.
Always make sure to reconcile regularly. The box should remain at $100 at all times. For example, if an employee buys paper for $5.00, the box should have $95 in cash and a $5.00 receipt for the paper. You replenish the box by writing a check to cash, entering all transactions into your financial system, and starting it all over.
Another reason to reconcile regularly it to make sure there are no employees taking unauthorized cash.
Enjoy!
My suggestion would be to start small, either $50 or $100. You can add more later if you feel your company needs the funds.
Always make sure to reconcile regularly. The box should remain at $100 at all times. For example, if an employee buys paper for $5.00, the box should have $95 in cash and a $5.00 receipt for the paper. You replenish the box by writing a check to cash, entering all transactions into your financial system, and starting it all over.
Another reason to reconcile regularly it to make sure there are no employees taking unauthorized cash.
Enjoy!
Tip of the Day: Bank Reconciliations
Back again with another tip of the day:
Bank Reconciliations
Make sure to reconcile your bank statement and credit card statements monthly. Don't just assume they are accurate or "the bank knows what they are doing". Also, if you have employees, make sure to review the statements first in order to catch any unauthorized transactions.
Save all statements for future purposes. I prefer to scan onto my computer then upload to an off site server. I dont have that big of an office so the thought of keeping each statement is a bit overwhelming.
Also do this with credit card statements, lines of credit, mortgages, car notes, etc. The only person protecting your business is you. Stay on top of things.
Take care,
Crystal
Bank Reconciliations
Make sure to reconcile your bank statement and credit card statements monthly. Don't just assume they are accurate or "the bank knows what they are doing". Also, if you have employees, make sure to review the statements first in order to catch any unauthorized transactions.
Save all statements for future purposes. I prefer to scan onto my computer then upload to an off site server. I dont have that big of an office so the thought of keeping each statement is a bit overwhelming.
Also do this with credit card statements, lines of credit, mortgages, car notes, etc. The only person protecting your business is you. Stay on top of things.
Take care,
Crystal
QuickBooks 101
For those of you who are more "hands-on" business owners, I am posting a step-by-step procedure on how to create a new company in Quick Books on the bookkeeper blog. Now, I am only posting a couple of "steps" per day so not to overwhelm too many people, and the servers. :) Check back each day for the next step!
Keep sending in referrals for Campaign 2010!
Take Care
Crystal
Keep sending in referrals for Campaign 2010!
Take Care
Crystal
